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The effects of government bond purchases on leverage constraints of banks and non-financial firms

Michael Kühl ()

No 38/2016, Discussion Papers from Deutsche Bundesbank

Abstract: This paper investigates how government bond purchases affect leverage-constrained banks and non-financial firms by utilising a stochastic general equilibrium model. My results indicate that government bond purchases not only reduce non-financial firms' borrowing costs, amplified through a reduction in expected defaults, but also lower banks' profit margins. In an economy in which loans priced at par dominate in banks' balance sheets - as a reflection of the euro area's structure - the leverage constraint of non-financial firms is relaxed while that of banks tightens. I show that the leverage constraint in the non-financial sector plays an essential role in transmitting the impulses of government bond purchases to the real economy.

Keywords: DSGE Model; Financial Frictions; Banking Sector; Portfolio Rebalancing Channel; Government Bond Purchases (search for similar items in EconPapers)
JEL-codes: E44 E58 E61 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-dge and nep-mac
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https://www.econstor.eu/bitstream/10419/146907/1/869751166.pdf (application/pdf)

Related works:
Journal Article: The Effects of Government Bond Purchases on Leverage Constraints of Banks and Non-Financial Firms (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:382016

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